Sort & Cull

Market Noise

John Harrington
By  John Harrington , DTN Livestock Analyst

Anytime the fed cattle market manages to rally through the classic summer heat of mid-July, my faith in miracles gets a much-needed shot in the arm. That's exactly the kind of hopeful vaccination received this week when apparently short-bought packers, in the face of imploding wholesale beef prices and dog-day expectations, jumped country bids by as much as $2 ($120 live, $190 dressed).

That may not seem to some like a windfall worthy of headlines. But, given the aggressive reverse-march seen in the country trade since Memorial Day, together with bearish predictions for record red meat production throughout the unfolding third quarter, the sudden bloom of higher money struck many in the trenches as shocking as an artesian well in the middle of Death Valley.

Trust me. I'd much rather take calls from subscribers animated by happy market surprises than ones generating misery. Yet lame answers fall equally flat on bullishly or bearishly cocked ears. You can always tell when the market-curious just ain't buying what the answer-man is selling.

I've had that awkward feeling in recent days. Unwilling to prematurely surrender widespread assumptions of supply (i.e., aggressive late winter/spring placement activity has stuffed third quarter production potential) and demand (strong but not phenomenal), my best explanation is "market noise".

Please excuse the disappointment.

"Market noise" is the price static made from day-to-day, week-to-week, as forces of supply and demand grind out a longer-term trend. A few markets go straight up or straight down, but the vast majority of price moves leave a pattern of hiccups that generally meander in one dominant direction or another.

"Market noise" in the cattle world has greatly intensified over the last several years. Specifically, from the start of 2014 through the first week of July 2017, the average weekly price variance was no less than $2.83. In other words, regardless whether the fed market was trending higher or lower, the average weekly price fluctuated nearly $3 from the previous week.

Measuring against this astonishing model of volatility, this week's pop of $2 means virtually nothing in terms of signaling a meaningful shift in market trend. Of course, it could eventually be proven as the first step toward shattering supply and demand expectations. Bulls are certainly welcomed to sit on the edge of their chairs in that regard.

But until a much larger pile of contrary price data can be presented, I can't call this week's happy action as anything more than "market noise."

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